What happens to credit card debt when you die?
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Credit card debt doesn’t follow you to the grave. It lives on and is either paid off through estate assets or becomes the joint account holder’s or co-signer’s responsibility.
In community property states, most debts acquired during a marriage are the responsibility of the community (the couple)—even if only one spouse is listed on the account.
When the estate loses, beneficiaries lose
Even if you’re not held personally liable for the debt on a credit card, you’ll feel the effects of it if you’re a beneficiary of the estate. That’s because debts will be paid from the estate before beneficiaries receive any distributions. In other words, any debts left behind when a loved one passes away can quickly gobble up much of their remaining assets, with beneficiaries receiving what’s left over (if anything at all).
Also, note that there is a specific period of time for creditors to file a claim against the estate. When an estate is probated, creditors are also prioritized. Credit card debt is unsecured, unlike a mortgage that’s secured by property, or a car that is secured by the vehicle. For that reason, it’s likely the credit card company will be at the back of the line when it comes to paying debts from the estate.
And, like it or not, beneficiaries are often even further down the line than credit card companies. That means if the estate doesn’t have enough money to pay all debts, beneficiaries could be liable to pay the remaining debt if they are a joint cardholder, co-signer or were married to the deceased and live in a community property state.
Six steps to take when a credit cardholder dies
When someone dies, the task of notifying financial institutions and closing credit card accounts can easily be forgotten or pushed aside. Unfortunately, plenty can go wrong if these critical tasks are neglected.
For example, identity thieves may troll obituaries and online records looking for recently deceased persons they may be able to impersonate to create new accounts. Hackers may also look for ways to steal from existing accounts of the deceased, which you may not notice if you haven’t notified banks and card issuers of the death quite yet.
Here are six steps you should take when a cardholder dies to prevent these issues and more:
1. Organize all financial documentation
If you’re the executor for the deceased, you should start by organizing all the person’s financial accounts. If you’re a court-certified representative or surviving spouse, you can also request a copy of the deceased’s credit report, which lists all accounts in their name.
“Sometimes, people can be on a credit card and not even know it,” says Pennsylvania attorney Linda A. Kerns. “Maybe when they filled out the credit card applications, [the joint cardholder] didn’t even tell them.”
These accounts could show up years later, at the time of a death or divorce. “I tell people to check their credit card reports regularly. Resolve it before a death or divorce or traumatic event,” says Kerns.
2. Ask for multiple copies of the death certificate
You will likely need to get several official copies of this document to send to credit card companies, life insurance companies and for other estate purposes. While the funeral director who handles the burial or cremation of your loved one can help you get copies of the death certificate, keep in mind that these official documents come with a per-copy cost, which varies by state and even the county where you live.
3. Prevent further credit card use
When someone dies, his or her credit cards are no longer valid. You should never use them or let anyone else use them. Not even for legitimate expenses of the deceased, like a funeral or their final expenses.
Continuing to use a credit card as an authorized user after the cardholder’s death is the most common way people unknowingly commit credit card fraud, and it could get you into big trouble. Estate lawyers recommend collecting all credit cards from people who may have them, including any authorized user cards, and put them in a safe place or destroy them.
4. Notify credit card companies of the death
All credit card accounts should be closed immediately after the primary cardholder dies, and you should act quickly to avoid interest and finance charges. For joint credit cards, notify the credit card company that a joint cardholder has died.
Also, find out if any recurring charges are set up on each credit card account. If there are automatic charges to the account each month like a phone bill or utility bill, you’ll need to cancel those or transfer them to another card right away.
When you contact each credit card company, do so by certified mail and save your receipt. If you call the number on the back of the card, you can speak to a representative about the situation. They can flag the account and provide the address where you’ll need to send the necessary documentation. Once each card issuer receives your letter, they’ll ask for an official copy of the death certificate if you didn’t send one in your initial letter.
5. Request a credit freeze from all three credit bureaus
In addition to all credit card companies the deceased had an account with, you’ll also need to contact all three credit reporting agencies—Experian, Equifax and TransUnion—to request a credit freeze. This can prevent anyone from opening up new credit cards or other accounts using the name and Social Security number of the deceased.
It’s important to follow up by mail to request that the credit report be immediately flagged as “Deceased. Do Not Issue Credit.”
The phone numbers for the credit bureaus are:
- Experian: 888-397-3742
- Equifax: 888-548-7878
- TransUnion: 800-916-8800
6. Know your rights before paying debt collectors
Depending on state law, you may also need to wait a specified period for bills to come in, and post a public notice of death in a newspaper before you start distributing money.
It’s essential to know your rights when dealing with debt collectors. Remember, you’re protected by the federal Fair Debt Collection Practices Act (FDCPA), which makes it illegal for debt collectors to use abusive, unfair or deceptive practices when they collect debts. Don’t let individual creditors try to jump ahead in line and get paid first—especially if there’s a chance there won’t be enough money to go around.
Before you pay anything, you should also ask the credit card company to submit a proof of claim for the estate, according to John Caleb Tabler of Lau & Associates in Pennsylvania. You can include this request with your written notification to the credit card company, or you can submit it later.
Some debt collectors are very aggressive, and they may try to prey on the survivor’s emotions to try to get them to pay a debt they may not owe. When reaching a deal with a debt collector, make sure you never admit or agree to anything on the phone, especially a payment plan.
If you need help determining the order of debts to be paid in your state or you need general legal advice while overseeing the final wishes of the deceased, you may want to seek out an estate attorney.
The bottom line
There are a lot of things to take care of when someone passes away, especially when there are financial complications like outstanding debt. Unfortunately, credit card debt doesn’t get wiped clean when the cardholder dies. That debt is still owed to the card issuers and needs to be paid by the estate or remaining signatory on the account. It’s important to take appropriate steps to handle surviving credit card debt, like canceling the cards, notifying issuers and the credit bureaus and keeping financial documentation in order.